Brazil's Gerdau Jumps 15% on Post-Katrina Steel Demand Outlook Gerdau, North America's fourth-biggest steelmaker, is the hemisphere's largest producer of long-steel products such as the reinforcing rod used to repair roads and bridges and the nails and angle irons that may help rebuild homes in New Orleans and beached casinos in Mississippi
Sept. 16 (Bloomberg) -- Shares of Gerdau SA, Latin America's largest steelmaker, surged 15 percent in the last two weeks on expectations the company will supply much of the steel needed to fix damage along the U.S. Gulf Coast caused by Hurricane Katrina.
Gerdau, North America's fourth-biggest steelmaker, is the hemisphere's largest producer of long-steel products such as the reinforcing rod used to repair roads and bridges and the nails and angle irons that may help rebuild homes in New Orleans and beached casinos in Mississippi.
``Fifty percent of Gerdau's revenue comes from North America and its focus is on the U.S. South that was affected by Katrina,'' said Alexander Ian Carpenter, an equity strategist who oversees $2.6 billion of assets for the private bank unit of HSBC Bank Brasil SA. ``There will be very strong demand for long steel for the reconstruction of the damage caused by the hurricane.''
Gains in the Porto Alegre, Brazil-based Gerdau have been outpaced by only one long-steel rival, Cia. Siderurgica Belgo- Mineira, a unit of Luxembourg-based Arcelor, up 19 percent in dollars since the hurricane. Arcelor, the world's second-largest steelmaker, is joining Belgo with its other South American holdings to create Brazil's No. 2 steel group.
In North America, the top post-Katrina performer is IPSCO Inc., which has gained 14 percent. The Regina, Saskatchewan-based company's units includes plants in Houston and Mobile, Alabama. The plant in Mobile resumed production two days after the hurricane passed through the region, the company said on its Web site.
For Gerdau, the outlook for increased sales after Katrina comes as Chief Executive Jose Gerdau Johannpeter, 68, consolidates a 15-year plan that has made the company the No. 4 steelmaker in the U.S. and the second-largest producer of long steel. The expansion has created a network of mills and distribution units in the U.S. close to all the major areas of destruction.
Capacity
``Within a distance of one day's truck or rail travel time to New Orleans, we have seven steel manufacturing facilities with close to four million annual tons of steel capacity,'' said Phillip Casey, chief executive of Gerdau Ameristeel Corp., Gerdau's Tampa, Florida-based unit, in an e-mail response to questions from Bloomberg.
With U.S. mills running at about 81 percent capacity before the storm hit on Aug. 29, the industry has room to boost production, said Thomas Danjczek, head of the U.S. Steel Manufacturers Association, which represents most of the U.S. makers of long steel.
``Our companies have the capacity to step up to the plate to meet increased demand,'' he said in a telephone interview from Washington.
The destruction may end up furnishing the raw material for reconstruction, he added. Gerdau and other long-steel manufacturers such as IPSCO and Charlotte, North Carolina-based Nucor Corp. make their wire, railroad spikes, nails and I-beams at electricity-powered mills that use scrap metal as the main component.
Storm Scrap
``The first benefit is more scrap in that part of the world,'' he said. ``The supply of scrap is a driver affecting scrap prices.''
The high cost of moving scrap and finished steel also makes being near to customers a key factor in the long-steel market, giving Gerdau and other companies in South, such as CMC steel in Texas, Nucor, with a major facility in Birmingham, Alabama, and Bayou Steel near New Orleans, an advantage over more distant users.
Producers based in the U.S. will also have first crack at the $51.8 billion the U.S. Congress is making available for Hurricane relief. Buy-American laws require that most steel made in the U.S. take priority over imports when the government is paying the bill.
Shares of Midlothian, Texas-based Chaparral Steel, which have gained 16 percent since the hurricane, are about tied with Gerdau as the best-performing steel stock in the storm's aftermath. Chaparral was spun off from Texas Industries Inc. in July and have been trading for less than two months.
Katrina's destruction probably will delay any benefits for steelmakers from rebuilding. Road, rail and water-transport links have been damaged, making it difficult to ship steel to those who need it, Casey said. Electricity is still unavailable in many areas, and the region's source of hydrogen gas needed for making steel roofing and sheeting has been destroyed, Danjczek said.
Lost Plant
Steel distribution warehouses have been shattered and stocks damaged. It will also take time for insurance companies, government and individuals to settle damage claims, scrape together new finance, put out bids and start building.
Higher sales may not show up in steel company results for as much as six months, Danjczek said.
While Gerdau's Atlas Steel & Wire plant in suburban New Orleans experienced little damage, Gerdau doesn't know when production at the plant of wire, wire mesh and nails for pneumatic nail guns will start again. Its 87 workers are scattered throughout the region, and many are homeless, Casey said.
Atlas's lost output will be picked up by Gerdau facilities in Texas, Tennessee, Kentucky, Georgia and Florida. |
